FCC Revamps USF Contribution Base to Include VoIP

As expected, the FCC on Wednesday changed the way it gathers contributions to the Universal Service Fund (USF). Interconnected VoIP providers now must contribute and wireless providers will pay more.

The FCC with a full complement of commissioners after more than a year was under pressure to add contributors to the USF requirements because, in August, DSL proceeds no longer will go into the pot. If the FCC had not updated who pays into the USF, the fund would have lost out on millions of dollars.

The move is only an interim solution. FCC Chairman Kevin J. Martin has been eager to reform the funds contribution base and fund administration, but that could take months or even years. The agency also is waiting to see what changes Congress will make to the USF requirements.

In the meantime, interconnected VoIP providers now will pay up to 64.9 percent of their service revenue, and the percentage for wireless providers has been raised from 28.5 percent to 37.1 percent.

Martin said, like wireless services, consumers are using VoIP instead of wireline services more and more.

[M]any of these VoIP providers claim that their services are inherently interstate, Martin said. Thus, we could require these providers to pay based on 100 percent of their revenues. Instead, we only require them to contribute based on a safe harbor of 64.9 percent the percentage of interstate revenues reported by wireline toll providers.

Martin and his colleagues are allowing interconnected VoIP providers to opt to contribute based on their actual interstate revenue or use a traffic study to show they should be allowed to put in less money.

The FCC has adopted a Notice of Proposed Rulemaking (NPRM) regarding the interim USF changes. That means the public is able to comment on the requirements before the FCC officially adopts any changes.

Martin also said that by making interconnected VoIP providers contribute, the FCC is furthering the principle of competitive neutrality. He explained that means the agencys universal service rules do not unfairly favor nor disfavor one technology over another, or unfairly advantage or disadvantage one provider over another. Like public safety goals, universal service obligations transcend new technologies and cannot be compromised.

Commissioner Michael J. Copps and his Democratic colleague Jonathan S. Adelstein both approved of the changes, with some reservations. Each praised the agencys efforts to maintain the stability of the USF but fretted over whether that will happen.

I think the jury may still be out on whether todays action actually puts enough additional funds into the universal service fund as DSLs nonparticipation takes out, Copps said, noting DSL providers were contributing approximately $350 million per year to the fund.

He added the FCC last year, when it deregulated DSL, pledged to preserve existing funding levels.

I dont see with slam-dunk certainty that contributions from interconnected VoIP (which is, for all its impressive growth, still a relatively nascent industry) and from wireless carriers (whose possibly increased use of traffic studies could lead to unforeseen consequences) offset the funds lost by DSLs nonparticipation, Copps continued. Surely it would be an intolerable result to end up with the fund having less revenue, not more, for the foreseeable future. Last summer we pledged this result would not happen. Nine months later, we seem to accept the possibility of a diminished fund.

Adelstein said the order leaves several questions unanswered, chief among them how to support the USF as America heads into the broadband age.

This order does not attempt to analyze the extent of the commissions decision last August on the overall revenues available for universal service purposes, he said. It is clear, however, that exempting broadband Internet access revenues would remove a sizable and rapidly growing segment of the telecommunications sector from the contribution base. I would have preferred to exercise our permissive contribution authority to address this potential decline in the contribution base permanently.

Meanwhile, Republican commissioners Deborah T. Tate and Robert M. McDowell said the FCC needed to clarify the contribution requirements as IP telephony overtakes analog, and commended Wednesdays NPRM.

Given the rapid marketplace adoption of VoIP, I am pleased that we make universal service obligations clear at an early stage so that we avoid unnecessary market distortion, Tate said. While I continue to advocate a light regulatory touch for nascent services like VoIP, it is essential that important goals like universal service are implemented in an equitable and nondiscriminatory manner.

McDowell, a former lawyer for competitive carrier association COMPTEL, said the USF needs to be reformed so it can continue to serve all Americans. Todays action is simply an interim measure that will help bridge the gap between the deteriorating status quo and a fairer and more sustainable system for the future, he said. The new changes, he added, provide the right balance of administrative ease and incentive to contribute based on actual interstate and international revenues. These interim measures also ensure that the fund remains solvent for the near term.

Industry reaction to the FCCs decision on Wednesday was mixed. Vonage Holdings Corp., probably the most widely recognized VoIP brand, said it was assessing which contribution method would be most beneficial for its customers.

Vonage fully supports its obligations to government programs, CEO Mike Snyder said in a statement. “Now that VoIP customers will be contributing directly to the fund, we hope as a result of this interim rule, VoIP companies will now be able to utilize universal service funds enabling Vonage and the industry as a whole to bring new technologies like ours to rural America.”

The National Telecommunications Cooperative Association (NTCA), which represents mostly rural providers, said it was pleased the base of contributors has been expanded. However, the association said it would have liked to see all cable, wireless, wireline, electric and satellite broadband Internet access providers required to pitch in, as communications networks evolve to rely on IP transmission services.

National Telecommunications Cooperative Association
Vonage Holdings Corp.

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